To track the intended -- and more importantly, unintended -- consequences of policies,market movements,buyout deals and regulatory censure. This forum will map the multiplier effect of what may seem minor events initially but spread out far and wide.

09/13/2010

BP's asset sale to open doors for Asian energy cos

One man’s misery is often another’s gain, in unintended ways. The beleaguered British energy major BP Plc is depending on a big ticket asset sale, reportedly worth $40 billion, to pick the tab of its “oily” spill over in the Gulf of Mexico and guess, who could be looking through its booty?

“…the cash-rich Chinese/Indian E&P names looking to grow overseas”, said a Goldman Sachs report as early as June this year. The reasons seem plausible, now more than ever.

Nearly five months after a BP deepwater drilling rig exploded in Macondo and caused the largest accidental marine oil spill in the history of energy industry, the company is still doing the math on how much more they need to provision for the disaster.

This could open more than a few doors for some of the Asian oil names. Latecomers in the energy exploration game,these firms found far fewer natural assets left worldwide to chase. Now, they are sitting on a cash pile and combing the globe for investment opportunities.

A risk-lowering exit for some US and European energy explorers could thereby, spell a portfolio-diversifying, entry plank for others.

Goldman Sach’s analysts Nilesh Banerjee, Arjun N Murti, Michele della Vigna and Nishant Baranwal, in their June 21 report had stated: “The market’s concerns about the ultimate cost of the Macondo oil spill, likelihood of greater regulatory scrutiny in the Gulf of Mexico (GOM) and possibility of further extension of the moratorium on deepwater drilling in GOM beyond six months…..will lead the E&P (exploration and production) operators in the region to consider divesting some of their assets to reduce/diversify their GOM exposure.”

The analysts pinpointed six such assets and noted that “most of these are assets are owned by BP, which has announced…(looking) at disposing some assets” while the Asian companies will be “screening for profitable, oily assets”.

The Asian companies, on the other hand, are bullish. Chinese oil refiners and explorers such as Sinopec, Petrochina, CNOOC and Sinochem alone have bought offshore assets worth nearly $15 billion in the last one year – signalling their “focus on the deepwater learning curve”, the report added.

India’s most valuable company, Reliance Industries Ltd. too is aiming for a global E&P footprint. The oil-to-yarn and consumer retail conglomerate, in a span of five months this year, bought stakes in three shale gas assets in US spending $3.44 billion. And it still has room for more.

Shale rocks are an unconventional source of natural gas found trapped in fine-grained sedimentary rocks and have attracted widespread interests from explorers in the recent months.

Moreover, RIL has soaked its feet in deepwater exploration in the Krishna-Godavari basin on the east coast of India and did it in six and a half years – clocking the world’s fastest deepwater discovery-to-production project.

These companies have the appetite and the deep pockets to pay for it. And they know BP may have just what they need.